Polish Rate-Cut Chances Grow After Inflation SlowsDorota Bartyzel
Poland’s slowing inflation raises the chances that the central bank will forgo a planned pause in monetary easing and reduce interest rates for a fourth month in February to boost economic growth, policy makers said.
Consumer-price growth, which had exceeded the bank’s 2.5 percent goal since September 2010, eased to 2.4 percent in December from 2.8 percent the previous month, the statistics office in Warsaw said yesterday. Slowing inflation allows policy makers to adjust domestic monetary policy, bank board member Andrzej Raczko said today in Vienna, backing calls by fellow rate-setters Anna Zielinska-Glebocka and Elzbieta Chojna-Duch.
Poland’s central bank was the only one in the European Union to raise rates last year. Governor Marek Belka indicated last week that policy makers may pause from further rate cuts after reducing the benchmark by a total of 75 basis points over three months to 4 percent.
Inflation “will slow even further in coming months, heading below 1.5 percent and boosting pressure on the central bank to cut rates,” Piotr Bujak, an economist at Nordea Bank in Warsaw, said by phone. Falling prices “will trigger cuts in February and again in March” and a pause in easing “will be possible only after the first quarter” when the economies of Poland and the 17-nation euro region, its main market, pick up.
The zloty was down 0.2 percent against the euro, trading at 4.1218 as of noon in Warsaw. The yield on the government 10-year bond rose 2 basis points to 4.06 percent.
Poland’s economy, the largest of the eastern members of the 27-nation European Union, will expand 1.5 percent in 2013, the weakest since 2002 and down from 4.3 percent in 2011, the central bank forecasts. It grew 1.4 percent in the third quarter from a year earlier as the debt crisis and recession in the euro region crimped exports and domestic demand dropped.
Based on those forecasts, policy makers began cutting rates three months ago, a year later than the European Central Bank and five months after the Czech Republic. Russia, which left borrowing costs unchanged yesterday, dropped a phrase that money-market rates are acceptable for the nearest future.
Poland’s easing cycle can’t last “forever” as optimism emerges about a euro-area recovery, Belka said Jan. 9. Economic confidence in the single-currency region jumped in December to a five-month high and beat economists’ forecast in Germany, which buys a quarter of Polish exports.
Six-month forward-rate agreements, used to speculate on official borrowing costs, traded yesterday at 64 basis points below the three-month Warsaw Interbank Offered Rate, suggesting traders predict fewer than three quarter-point rate reductions by July, down from four last week.
“Policy makers are resisting deeper rate cuts because they still don’t believe in a sustained fall in the inflation rate below the target,” Marta Petka-Zagajewska, chief economist at Raiffeisen Bank in Warsaw, said today by phone. “What could make them believers is the data on December industrial output, which we forecast may fall 10 percent.”
December industrial production figures, along with data on wage growth, are scheduled to be released Jan. 18.
Industrial output falling less than the 6.5 percent median estimate of 22 economists in a Bloomberg survey, employment remaining “broadly unchanged” and wages rising more than the 2.2 percent market consensus would create conditions for rates to remain unchanged next month, according to Gergely Hudecz, an economist at Credit Suisse Group AG in Paris.
“Our base-line scenario continues to envisage that the MPC will adopt a wait-and-see stance and keep the policy rate unchanged at 4 percent at its next rate-setting meeting on Feb. 5-6, although risks to this scenario are skewed to the downside,” Hudecz wrote in a note to clients yesterday.
The central bank forecasts the inflation rate may decline to less than 1.5 percent next year. The Finance Ministry made the same prediction yesterday in an e-mailed response to questions from Bloomberg News. A lack of wage pressure or the absence of energy-price increases may cause a further decline in the inflation rate in the coming months, the ministry said.
Chojna-Duch, who said in a Jan. 11 interview that Poland may pause its rate cuts next month, said yesterday’s inflation data boosted the chances of a reduction in February, Reuters reported. While a pause in monetary easing will be needed, it shouldn’t happen now, PAP quoted Zielinska-Glebocka as saying yesterday.
“The significant fall in inflation to below the target in December supports the dovish MPC members,” Maja Goettig, a strategist at KBC Groep NV in Warsaw, said by phone. “If the CPI figure will be accompanied by the sharp decline in December’s industrial output, decelerating employment dynamics and slower wages growth, the odds for another 25 basis-point rate cut already in February should increase.”